Nexus of Growth and Employment Under Post-2001 Turkey A. Erinç Yeldan Bilkent University IDEAs Network

“In these papers all needless matters have been eliminated... There is throughout no statement of past things wherein memory may err, for all the records chosen are exactly contemporary, given the knowledge of those who made them.” - Bram Stoker, Dracula, 1897

“something significant has changed in the way capitalism has been working since about 1970” David Harvey, 1989

thou shalt have: “inflation targeting, flexible exchange rate regimes, fiscal austerity, good governance open trade, free markets, credibility... ”

Source: Wolff and Resnick, 2006, Advances in Marxist Theory

With the completion of capital account liberalization in 1989, Turkey is trapped into high real rates of interest and an overvalued exchange rate (cheap foreign currency)

Inflation is on a falling trend, yet the real interest rate proves to be inertial...

Inflation and Real Interest Rates

Adjustment Mechanisms after the 2001 Crisis and the Main Features of the IMF Programme

Large scale of Capital Inflows lead to currency Mis-alignment...

Real Bilateral and the Trade Weighted Exchange Rates

The current account deficit problem emerges not because of its sheer size, but because of its mode of financing

Turkey has gone through a period of speculative-led and foreign debt driven growth under the IMF programme. Economic costs of this episode were realized as increased international fragility (current account deficits) and unemployment.

jobless growth and declining real wages...

In fact, “…the source of macroeconomic instability now is not instability in product markets but asset markets, and the main challenge for policy makers is not inflation, but unemployment and financial instability”. Akyüz (2006)

Lessons “ the argument that ‘this time things are different’ is a statement that can only be made by fools that fail to take any lessons from history...” Kenneth Rogoff, IMF Chief Economist, 2005